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Clean Air Blues: the Eye in the Sky sees inconsistencies in Canada’s new Clean Fuels Regulation

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Policy wonks were entertained recently with a minor scuffle in Canada’s Parliament, when the Parliamentary Budget Office (PBO) issued an analysis of the new Clean Fuels Regulation (CFR), which was published in 2022, suggesting that the per-litre price rises of gasoline and diesel resulting from the Regulation constituted a regressive tax.

These price rises would result from fuel manufacturers’ obligation under the new Rule to “reduce the carbon intensity of the fuels they produce and sell in Canada”.

Sounds straightforward, but there are problems. First, the Regulation considers the carbon content of a fuel to have a directly proportional relationship to the fuel’s “cleanliness.” That’s not the part that’s wrong. Typically the more carbon dioxide a fuel produces when burned in air, the more “pollution” it produces as well. But assuming a fuel that has “less carbon” in it will produce less pollution is incorrect. The less CO2 it produces, the less heat it produces as well, and the more fuel you need to burn to accomplish the same amount of work as with a fuel that has more carbon. Pollution-wise, you’re back at square one.

Second, the wording of the Regulation implies that there are such things as “low carbon” combustible fuels, that when burned somehow produce less carbon dioxide. Yes, there’s hydrogen, which would turn into water when reacted with oxygen. But there are problems with that too, which we’ll get to in a second.

Because the CFR ignores an actual, bona fide, recognized pollutant, Nitrogen Dioxide (NO2), it undercuts the whole point of a clean fuel regulation. NO2 is a harmful pollutant in itself and also a precursor to other harmful pollutants, such as ground-level ozone (O3) and fine particulate matter (PM2.5). All combustion that uses air as the oxygen source produces NO2, and thence O3 and PM2.5. That includes pure hydrogen, assuming anybody ever burns that in a car engine (which is very unlikely to ever happen). If you burn something in air, you get NO2.

An underlying assumption to the first point is that the carbon that is contained in the litany of “alternative fuels” that are implied to be benign (these include corn, wood, recycled vegetable oil, municipal solid waste, methane from a bio-digester, etc.; yes, the CFR tacitly acknowledges that those fuels do contain carbon and produce CO2) is somehow on a different moral level than the carbon contained in fossil fuels, and that when an “alternative fuel” is burned, the CO2 that results is also on that different moral level, and thus deserving of a moral exemption, from both public opprobrium and punishment in the form of the carbon tax.

A further assumption is that “alternative fuels” can be anywhere as plentiful as conventional hydrocarbon fuels. Canadians used nearly 40 billion litres of gasoline in 2021. Those contained roughly 10 percent ethanol—4 billion litres. Getting another 36 billion litres per year, so as to achieve 100 percent “biofuel,” would strain the agricultural ecosystem in North America past the breaking point. Most ethanol comes from corn grown on the American prairies—yes, we’ve decided that it’s better to burn crops as “biofuel” than to eat them. The idea that we could get significant amounts of ethanol from wood, or switchgrass, or other allegedly natural feedstocks, is a pipe dream.

The eye in the sky, looking at true (nitrogen dioxide sources)

Most important, because the CFR is limited to liquid fuels, it ignores the greatest source of NO2. Most Canadian NO2 is produced in space-heating engines, a.k.a. furnaces. Satellite reconnaissance tells us this. The Toronto and Montreal subplots of the figure below are based on data from the NASA Aura satellite. In those subplots, you can see a distinct seasonality of the NO2 daily measurements: values tend to be at their lowest in July and August, and highest October to March. The seasonal pattern of gasoline retail sales in Ontario shows just the opposite: values are highest in July and August, lowest in January and February.

Knowing the amounts of energy of different types—electricity, transport, and heating—that Ontarians use through the year, this is about what we should expect. The breakdown is as follows.

  1. Ontarians’ biggest energy usage, by far, is natural gas for space and water heating—over 260 billion kilowatt-hours per year. December to March use accounts for half of annual use.
  2. Next largest is gasoline and diesel for road transport: that consumes about 200 billion kWh. Most gasoline usage is May through August, in Ontario at least; see the right-hand subplot in the figure above.
  3. Electricity, at roughly 140 billion kWh per year in Ontario, is in distant third place. Currently Ontario is a “summer peak” system.

The CFR designers commit the same error all “alternative fuel” program designers have committed since the original energy crisis in 1973: they indulge the gauzy notion that “natural” fuels, like wood, recycled vegetable oil, municipal solid waste, methane from a bio-digester, and agricultural crops, magically do not produce air pollution when burned. Anybody who has ever gone camping and inhaled a lungful of wood smoke knows that’s not true. Millions of poor South Asian women who cook the family meal on dung (a.k.a. “biofuel”) fires know that that smoke is not good for them.

Our recommendations to governments

The foregoing does not mean CNWC are necessarily against the CFR. We understand that any measure that increases the cost of combustible fuels for internal combustion engine (ICE) cars makes battery-electric vehicles more attractive from the point of view of cost of operation. And we are in favour of transitioning the road vehicle fleet to BEV.

But if this is what the government wants to accomplish, then the government should say so.

We recognize that the CO2 intensity of a fuel is a proxy for bona fide pollutants like NO2 (and all species of nitrogen oxides, as well as sulphur oxides, and others).

But we are concerned there is too little emphasis on attacking space and water heating, the largest-by-far energy end-use category in Canada. As we pointed out in our Statement on COP26, baseload residential and commercial domestic hot water (DHW) demand in Ontario amounts to nearly 3,500 megawatts—the output of a station bigger than Darlington at full power. To repeat: that’s a Darlington-size station just to handle minimum DHW power demand.

We also point out that increasing the cost of combustible fuel is not the only way to reduce the operation cost disparity between ICE and BEV vehicles. Another way is to lower the price of electricity. This is totally within government’s power to do—but provincial government. The feds could influence the provinces by encouraging provincial electric utilities to put more non-emitting bulk generation capacity into their systems. The only way is by ensuring that that capacity is able to deliver power at a high capacity factor. Otherwise system costs make it impossible to lower prices.

If the bulk generation that underpins lower electricity prices is also non emitting and the electricity is used to replace gas in space and water heating, then that’s the only thing that will drop the NO2 in the Toronto plot.

Of course the NO2 measurements shown in the timeseries (left-hand) plots above would include the NO2 produced by road vehicles, but the seasonality, together with the fact that gasoline sales in the right-hand plot show the opposite pattern, suggests significant amounts of NO2 are coming from heating systems, not ICE road vehicles. The fact that this is left out of the CFR means we are over-focusing on sources that are less polluting, in terms of the activity that produces the most pollutants.

This further suggests that Canadians will over-pay to reduce smaller amounts of NO2, while continuing to pollute.

The plots do not cover identical time periods and as such are not perfectly comparable. We assume the seasonal pattern of gasoline sales continued after 2015 (the year Statistics Canada stopped monthly reporting of gasoline sales), and that the NO2 satellite measurements over Toronto and Montreal would have shown a similar pattern prior to 2015. If these assumptions—i.e., that Toronto/Montreal NO2 emissions peak in winter and that Ontario gasoline usage occurs more or less in the same month as sales, and that gasoline sales peak in summer—are correct, then the seasonal NO2 increase over Toronto is due to space and water heating. Montreal is less pronounced because space heating there is predominantly electric.

The Parliamentary scuffle mentioned at the top had to do with the PBO report’s claim that the 16 and 17 cent-per-litre increases on diesel and gasoline prices, respectively, represent a regressive tax in that it will affect low-income households disproportionately. The Climate Change Minister countered by accusing the PBO of failing to factor in the cost of climate change.

Given that the CFR relies on magical thinking to claim that “alternative fuels” are somehow cleaner and less carbon intensive than fossil fuels, this is a case of not just the pot calling the kettle black, but of the fire, that blackens both, producing copious amounts of the very pollutants the CFR is intended to eliminate.

The Canadian rule follows a similar U.S. one. In a way, this makes sense: the Canadian and U.S. economies are so integrated that harmonization of fuel standards would be unwieldy if Canada were to go in a different direction.

But the U.S. rule is as comically misinformed as the Canadian one. Just because they are pursuing uninformed policy doesn’t mean we have to.

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